Third Parties Must Tread Carefully When Implementing Freezing Injunctions Directed Against Them

In a recent Supreme Court of Canada decision in Carey v. Laiken, 2015 SC 17, a lawyer was found in contempt for returning funds paid on retainer to his client that were subject to a Mareva freezing injunction.

In previous litigation, Ms. Laiken sued her broker claiming he had defrauded her. She obtained a Mareva order prohibiting the broker and anyone having notice of the order from “disposing of, or otherwise dealing with” any of his assets. A few months after the freezing order, the broker sent his attorney funds, some of which were used to pay his fees, which was approved under the freezing order. The broker told his attorney to use the remaining funds to settle claims of other creditors, which the attorney did.

The Supreme Court of Canada confirmed that counsel was guilty of contempt of court because all that is necessary is that the person did a deliberate act that was contrary to the terms of the order. The Supreme Court rejected arguments that the attorney was complying with his professional responsibilities by following his client’s instructions and that there should be no contempt since the funds were always beneficially owned by the client.

This decision could equally apply to financial institutions, brokers or other third parties. However, in the United Kingdom, there could be no liability. The Carey court recognized that there is authority in the United Kingdom and Australia that third parties will not be found in contempt unless they show a conscious intent to interfere with the administration of justice. But, in R. (Revenue & Customs Prosecution Office) v. Loyola TSB Plc (2007) EWHC 2393 (Admin), a financial institution was found in contempt for transferring frozen funds into a new account without advising the claimant, even though the transfer was well-intentioned and no loss occurred.

The Carey and Lloyds decisions point out that third parties subject to a freezing order must not unilaterally implement what is believed to be a practical application of the order without approval by the party obtaining the order and the court.